Employee benefits in Russia

The pay and benefits gaps between Russian-owned and multinational/foreign-owned companies have largely closed. 

State-run healthcare is fairly basic so the typical Russian benefits package offers private medical insurance as well as life cover. 

Pensions are still uncommon, but state reforms and recruitment issues mean it is the benefit to watch in the future.

Last month I had the odd experience of taking in the tourist sites around Red Square while being tagged by an armed bodyguard. Actually it wasn’t me he was keeping his eye on, so much as one of our party, the general manager of a well- known multinational company based in Moscow. The firm is having a little dispute with the brokers who are meant to be supplying insurance and maintenance for its company cars. And in Russia, disputes can still result in someone being roughed up – hence the need for a bit of muscle-bound, KGB-trained protection.

I was intrigued to learn that, as expats from the UK, the businessman and his wife had received a coat allowance (the average UK winter coat would not bear the brunt of a Russian winter) and a driver because to drive over there you need to pass a written test in Russian – complete with Cyrillic.

All of which made me wonder what the average Russian employee receives in their benefits package these days. The answer appears to be that it will depend on what type of company they work for – Russian-owned or not. John Swabey is head of consulting for the Watson Wyatt team based in Brussels who works with clients in central and eastern Europe. He says: “The Russian companies used to be only paying about half of what foreign-owned firms were, but now it is about the same or even more.”

Larisa Muravska, director for Russia and CIS at Mercer Human Resource Consulting, adds: “The typical package would be medical insurance, life insurance with disability insurance, most of the companies provide cars, and to different levels of employees they can provide lunches, but the pension is something that is missing.” Medical insurance tops the list because state provision has not been restructured. “It provides very basic services and coverage of poor quality. And even if you get basic care you must stand in line,” she says. The medial insurance is a contract between the employer or insurance provider and a clinic.

“So you pay a premium and then you receive a list of clinics where your employees can go and a list of services they can receive. It is pre-paid service,” explains Muravska.

The benefit to watch in the future is the pension. Although Watson Wyatt data published in November 2004 shows that only about 15% of companies offer a pension to manual staff and 20% offer one to managers – with a median payroll cost of 5%. Mercer data shows that 20% of firms are developing a pension plan, with 27% saying they are planning to implement the plan within the next three years.

There is a great deal of interest in pensions because state reforms are coming into play. In line with most of the developments across central and eastern Europe, Russia has “tinkered with the first pillar, basic social security,” says Watson Wyatt’s Swabey. “But they are trying to [push for a situation where] everybody is going to have an element of their future basic pension rights, not on a pay-as-you-go basis, but on some sort of individual defined retirement account. And that money is going to be managed either by the mandatory system or you can choose to put it into one of the new second pillar pension funds which have been set up.”

Muravska points out: “For two reasons, this is the benefit that multinationals should pay attention to. Firstly, if they are based in Moscow the labour market is very competitive and unemployment in Moscow [is virtually non-existent]. Secondly, while in more stable markets retirement benefits might not [make an employer stand out], in Russia it is very important because the statutory pension provides significantly low income replacement.”